Exam 8: Fraud, Internal Control, and Cash

At August 31, Litke Company has this bank information: cash balance per bank $6,950; outstanding checks $762; deposits in transit $1,700; and a bank service charge $20. Determine the adjusted cash balance per bank at August 31, 2010.

Companies that are subject to, but fail to comply with, the Foreign Corrupt Practices Act of 1977

Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control principle that is related to the problem described. Internal Control Principles A. Establishment of responsibility B. Segregation of duties C. Physical controls D. Documentation procedures E. Independent internal verification F. Human resource controls 1. The same person opens incoming mail and posts the accounts receivable subsidiary ledger. 2. Three people handle cash sales from the same cash register drawer. 3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise. 4. The person who is authorized to sign checks approves purchase orders for payment. 5. Some cash payments are not recorded because checks are not prenumbered. 6. Cash shortages are not discovered because there are no daily cash counts by supervisors. 7. The treasurer of the company has not taken a vacation for over 20 years.

Allowing only the treasurer to sign checks is an example of

On October 1, 2010, Herman Company establishes an imprest petty cash fund by issuing a check for $200 to Jill Gray, the custodian of the petty cash fund. On October 31, 2010, Jill Gray submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is $55 cash in the fund: Instructions Prepare the journal entries required to establish the petty cash fund on October 1 and the replenishment of the fund on October 31.

Tavarez Company assembled the following information in completing its July bank reconciliation: balance per bank $11,460; outstanding checks $2,325; deposits in transit $3,750; NSF check $240; bank service charge $75; cash balance per books $13,200. As a result of this reconciliation, Tavarez will

When opening a bank checking account, a signature card

Internal control is defined, in part, as a plan that safeguards

If the month-end bank statement shows a balance of $36,000, outstanding checks are $12,000, a deposit of $4,000 was in transit at month end, and a check for $500 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Related selling activities do not include

Control over cash disbursements is improved if major expenditures are paid by check.

Match the internal control principle below with the appropriate cash receipts procedure described. a. Documentation procedures b. Establishment of responsibility c. Independent internal verification d. Human resource controls e. Physical controls f. Segregation of duties _____ 1. Only designated personnel are authorized to handle cash receipts. _____ 2. Different individuals receive cash and record cash receipts. _____ 3. Use remittance advice and cash register tapes. _____ 4. Store cash in safes and bank vaults. _____ 5. Treasurer compares total receipts to bank deposits daily. _____ 6. Bonding of employees that handle cash. SO: 3, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls Solution 174 (5 min.)

Internal auditors

In general, documents should be prenumbered and all documents should be accounted for.

Storing cash in a company safe is an application of which internal control principle?

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

In preparing its August 31, 2010 bank reconciliation, Acme Corp. has available the following information: At August 31, 2010, Acme's adjusted cash balance is

If the month-end bank statement shows a balance of $54,000, outstanding checks are $18,000, a deposit of $6,000 was in transit at month end, and a check for $750 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Employees who handle cash should be ______________ in order to protect against misappropriation of assets by dishonest employees.